Microsoft's MSN music service recently began a free song promotion sponsored by American Express
Not to be outdone, Apple is also stepping up its marketing efforts. Last month, the company and rock band U2 announced a deal to sell customized iPods. And just in time for the holidays Apple has launched a new iPod store on the front page of Amazon.com
For now, Apple is the undisputed leader in digital music players and online music sales. Microsoft's move into the digital music space has the potential to shake things up. One advantage Microsoft has over the competition is that the company can afford to take a loss on the service until it irons out the kinks. Another is the strength of its Windows Media Audio (WMA) format used by almost all music services, such as Wal-Mart
However, selling songs is a slim-margin business at best. The player sales are where the profits are counted. Until recently Apple closed its system to competitors; the iPod the only portable music player that works with iTunes, and vice versa. Enter RealNetworks
One fact is clear: Microsoft is looking long term and has the cash to stay the course. Other companies such as Apple are working with dramatically fewer resources. At some point, portable media players will become commodity items, and Apple won't be able to charge customers the high prices it does now. Then the equation will change, perhaps to Bill Gates' advantage.
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Fool contributor Kelvin Taylor does not own shares of any of the companies mentioned.